SEB analyst: Estonia should weigh car tax instead of cuts

TALLINN - Mihkel Nestor, analyst at SEB, has suggested to introduce a car tax as an alternative to austerity policies in Estonia, Postimees reports.

"Could a car tax be weighed instead of austerity and reduction in public services?" Nestor asked in his weekly commentary. He opined that also worthy of attention in addition to Estonia seeing its biggest ever budget deficit last year is the fact that what used to be a temporary concern is now becoming a chronic problem.

Latest statistics on public finances show that Estonia's deficit totaled 1.5 billion euros last year, or 5.5 percent of GDP. During the crisis of 2008, which proved much worse for Estonia, the deficit only amounted to 2.6 percent.

"Considering the new government coalition's promises regarding meeting climate objectives, a carbon dioxide-based car tax would suit their ambitions perfectly. For those interested more in figures and less in the environment, some one billion euros' worth of passenger cars alone are imported to Estonia per year. It seems to me the tax base is sufficient," Nestor.

Nestor is not the first to suggest a car tax. Estonia was closest to introducing said tax in spring 2017 when the then government coalition developed and introduced a detailed plan on the matter. The then minister of finance Sven Sester called it an environmental fee on motor vehicles, which was to be paid during the first registration of a vehicle.

When asked by the business daily Aripaev last year if Estonia is ready for property taxes, President Kersti Kaljulaid said that when the Estonian state was created, people did not have any property and the state did not want to punish them for buying a home.

"Entrepreneurship should gain from this, and not necessarily the wealthier consumer," the president said, and instead proposed car taxes. She did not elaborate on the idea any further during the interview, however.

Support to a car tax was expressed by the then deputy secretary general of the Ministry of Finance Dmitri Jegorov, who last said four years ago that Estonia should introduce a car tax instead of constantly raising its excise duties on fuel.

Head of the Estonian Automotive Recyclers' Association Riho Seppet said that a car tax is the only way to efficiently urge people to bring their environmentally harmful end-of-life vehicles to a salvage yard.